To Go, or Not To Go? That is the Question
The Restaurant Dilemma, explained with the Product Improvement framework
To go, or not to go? That is the question… for restaurants. Like young Hamlet in Shakespeare’s masterpiece, restaurants awoke to a world turned upside down in the spring of 2020 and have yet to find its way back to normal.
Act 1. In the spring of 2020, the pandemic began and everything was locked down. Restaurants pivoted to takeout and delivery to keep some income stream going. Even our favorite ramen restaurant which was religiously anti-takeout prior to the pandemic, was forced to adjust to the new reality.
Act 2. Then came the summer of 2020 when things started to open up with outdoor dining. Some restaurants went all-in and built out elaborate outdoor dining areas, full of string lights, greenery, and ambiance. Others continued to focus on takeout and delivery only.
Act 3. Fast forward to today, we’re weeks away from 2022. While things are mostly open, there’s no shortage of adversity facing restaurants. Reduced indoor dining capacity. Vaccination requirements. Extreme weather. Rising food costs. Labor shortages. Nearly two years into the pandemic and restaurants have yet to return to normal.
In the face of all of these challenges, different restaurants have reacted with different decisions. Some restaurants like Feng Cha have chosen to remain takeout only. Other restaurants like Che Fico offer take out and dine-in but add surcharges to dine-in to “reflect the true cost of dining inside of a restaurant”. In a sense, this prioritizes take out over dine-in customers. And finally, there are restaurants like Cheesecake Factory and Olive Garden who are turning off delivery during busy hours. They are favoring dine-in over take out customers.
If all restaurants share the same goals of serving customers and earning a profit, why have restaurants made such different decisions? What is the right strategy? Let’s break this down like a product improvement problem.
Step 1: State the goal
Starting with a clear picture of the goals will help you prioritize your options later. Imagine if I’m the owner of Mom’s Restaurant. My goals could look like this:
Customer Goal: Delight my customers with yummy food and good service
Business Goal: Make a profit
Step 2: Map out the levers
Profit is a function of revenue and expenses. For a restaurant, revenue can be expressed as the number of orders multiplied by the order value, and expenses can include labor cost, food cost and marketing cost like the fees paid to third party delivery apps. Walk through the equation and think about which factors vary depending on whether a check is dine-in, take out, or delivery. These are your levers.
Step 3: Brainstorm ideas
Using the levers that you identified as a framework, brainstorm tactics that you could use to move each lever. Carrots improve the diner experience and sticks reduce the diner experience.
Increase AOV
a. Carrot: Add prix fixe, wine pairing, and set menus. This could offer greater value than ordering a la carte or just help diners reduce brain damage on what will taste good together, especially with a larger group. This can also improve your efficiency if a lot of people choose common options
b. Stick: Set minimum order value per person seated
c. Stick: Shut down delivery orders (Olive Garden)
Increase # orders
a. Carrot: Offer takeout as an alternative if a table is not currently available. When I go to Din Tai Fung, I’m not willing to wait for 2 hours for a table to open up. I can order it to go, pick up my food when it’s hot and ready, and eat it a few feet away from their door inside the mall. The tradeoff of giving up table service rather than waiting in line for hours is worth it to me and my decision to make.
b. Stick: Set expectations for length of time at table
Improve labor efficiency
a. Carrot: Ghost kitchens - separate kitchens for dine in and take out customers to create more efficiency
b. Neutral: Reduce length of menu
c. Stick: Close off dine-in seating (Feng Cha)
d. Stick: Charge a fee for more labor (Che Fico)
Reduce marketing fee
a. Carrot: Give customers rewards for ordering takeout directly - e.g. buy 10 sandwiches, get 1 free.
b. Neutral: Hire your own delivery person
c. Stick: Mark up prices on 3rd party apps
Step 4: Prioritize ideas
Great! You have a big list of ideas, but you can’t implement them all at once, nor should you. You can figure out which ones are the most promising by mapping out your ideas on two dimensions: profit and customer delight. Your best bets are the ideas in the top right quadrant. Of course, the other important component to prioritization is level of effort. In this example, offering a prix fixe menu and running a ghost kitchen both seem to be attractive ideas. It’s easy to prioritize between the two once you factor in level of effort. It’s much lower cost to test out a prix fixe menu for a weekend than to spin up a whole ghost kitchen for a weekend, so it’s a smarter bet to start with the prix fixe menu.
As you think about your product and its competitors, do you see why you might start with the same goals and come up with different solutions? When you follow the Product Improvement framework, you use a structured approach to break down the problem and generate many different ideas to solve the same problem. There is no right or wrong strategy, only smart bets on what can drive the most impact in an efficient way.
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